A method and system for applying a network policy in a virtual extensible local area network (VXLAN) environment. The method includes receiving, at a network device, a VXLAN frame that includes a source VXLAN network identifier (VNI). The network device includes a first network policy. The method also includes examining the VXLAN frame to determine the source VNI; obtaining, based on the source VNI, the first network policy; and processing the VXLAN frame based on the application of the first network policy.